A Chinese IPO is likely to take center stage in the U.S. this week, while an American software firm could test the appetite for new stocks with poor profit histories.
The pair are part of a trio of companies expected to launch initial public offerings this week: Chemspec International Ltd., Medidata Solutions Inc., and Duoyuan Global Water Inc. If all three are completed, it would be the most active week for IPO issuance in the U.S. since May 2008.
Chemspec appears to the front-runner; IPO research site IPOfinancial.com selected it as pick of the week, and several analysts say demand from investors appears strong.
The Shanghai-based company bills itself as the largest maker of fluorinated specialty chemicals in China, which are used in everything from pharmaceuticals to components for consumer electronics. The company, which is seeking to raise as much as $73 million through a listing on the New York Stock Exchange, is expected to begin trading by midweek under the symbol CPC.
Enthusiasm for the offering isn't universal. Morningstar panned the deal as a "toxic" one that investors should steer clear of, given growing competition, soft end-markets, and related-party transactions between the firm and its founder, among other criticisms.
Sales and net income at Chemspec have been growing steadily, although income-tax expenses dragged the company's first-quarter profit below that seen in the same period of 2008, when it booked income-tax benefits.
Although demand for chemicals used in consumer electronics have softened and the average selling price of its commercialized products was halved from 2007 to 2008 due to a lower-margin mix from a newly acquired facility, the company's prospectus projects a strong outlook. The company expects demand to grow later in 2009, particularly as the holiday season approaches, which is traditionally a strong sales period for consumer electronics, and as it moves toward producing more highly engineered, higher-margin pharmaceutical and agricultural chemicals.
Software company Medidata, based in New York, will be the first IPO of the year without a full year of profit under its belt. So acceptance of the deal would be a sign that investors are willing to take on more risk, and could open the window for more companies to test the market.
The company, which specializes in clinical-trial software aimed at pharmaceutical and medical-device makers, has been selling its products since 2001, and counts 22 of the top 25 pharmaceutical firms among its customers, including Johnson & Johnson and Amgen Inc.
While its customer base has quadrupled since 2006 and revenue has been rising rapidly, it hasn't yet had an annual profit; it was profitable in the first quarter, however. It plans to raise as much as $82 million through a listing on Nasdaq under the symbol MDSO.
The lack of profitability "may end up being a bit of a sticking point for investors," says David Menlow, president of IPOfinancial.com. "But it will be a good litmus test for whether losses will be tolerated for a company that is known and has so much awareness within its field."
The third deal of the week comes from Chinese water-treatment equipment supplier Duoyuan, which plans to raise as much as $75 million through a NYSE listing under the symbol DGW.
Although it isn't drawing as much attention as Chemspec, the Beijing-based company still occupies an interesting niche, thanks to rapid urbanization and industrialization in China. Revenue and profit have been increasing at a fast clip from sales of water purification and wastewater-treatment products.
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